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4 Home Equity Line of Credit (HELOC) Myths Debunked

By Melissa Green | Citizens Bank Staff

There are a number of myths around home equity lines of credit (HELOCs), and many of them misrepresent what can be a smart way to borrow money. With a HELOC, you have access to a line of credit with a lower interest rate than most lending options because it’s secured by your home’s equity.

Learn more about HELOC myths so you’ll be able to separate fact from fiction.

Myth 1: You can only use a HELOC for home improvements

Truth. While home improvements are a great way to use a HELOC, you’re not restricted to how you can use the money. For example, you can use a HELOC for education, travel, adoption expenses, as an emergency fund, consolidating debt, or paying off your mortgage balance.


Myth 2: The interest paid on a HELOC is no longer tax deductible

Truth. The tax laws of 2017 placed new restrictions on deductions for interest paid on home equity loans and HELOCs. However, according to the IRS, taxpayers who use a home equity loan or line of credit to “buy, build, or substantially improve” their home may still be eligible.

So, you may be able to deduct interest paid on a HELOC, depending on what you use it for. To determine eligibility based on your own unique borrowing situation, contact a tax advisor who can guide you through the tax law.

Myth 3: You have to withdraw/use funds from your HELOC at closing

Truth. It depends on the lender. You may be required to withdraw funds at closing, and/or maintain a minimum balance. There are lenders that don’t have these requirements, so it’s important to shop around so you can make the best choice for your unique situation.

Myth 4: It takes several years before you can use your home’s equity

Truth. In some cases, depending on the type of mortgage, homeowners may have equity as soon as they make their down payment. For example, a homeowner that secures a traditional mortgage to purchase a home with a market value of $250,000 and makes a down payment of $37,000 will enter their mortgage with 15% equity. Check with a potential lender to learn about additional requirements and costs.

Know the facts

If you’re considering using your home's equity to borrow money, be sure to work with a lender that can help you separate fact from fiction and make educated decisions about your current and future investments.

Ready to take the next step?

We have a team ready to help with all your home-borrowing needs. Simply call 1-888-333-1206, or click here to learn more.

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